Australia Central Bank: Signs Low Rates Working

Monday, 15 Apr 2013 | 9:47 PM ETReuters

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Australia's central bank felt the current level of interest rates was low enough to spur growth in many parts of the economy, but noted that headwinds such as a high local dollar and cooling mining investment were likely to persist.

In the minutes of the Reserve Bank of Australia's (RBA) April 2 meeting, where it kept the cash rate unchanged at a record low 3.0 percent, policymakers reiterated that a benign inflation outlook meant there was room ease further if needed.

"With growth forecast to be a little below trend in 2013, and inflation close to target, members judged that it was appropriate for the stance of policy to be accommodative," the minutes showed.

"The outlook for inflation, as currently assessed, would provide scope for further easing should that be necessary to support demand."

Having dropped its cash rate by 175 basis points since late 2011, the RBA has held policy steady so far this year amid evidence that asset prices, consumer spending and housing construction were all starting to pick up.

Indeed, data released this month showed retail sales surged in February, posting their biggest rise in over three years. Housing finance also beat expectations.

Markets now imply a 27 percent chance of a quarter point cut next month and have 40 basis points worth of easing priced in over the next 12 months.

Board members also discussed the various labor market indicators and believed they were consistent with moderate employment growth in the months ahead.

On non-mining investment, the RBA said there were signs that some firms were willing to increase spending, particularly on information technology assets and systems.

With a long boom in mining investment expected to peak this year, the central bank would very much like to see a pick up elsewhere in the economy.

On the outlook for the country's top export markets, RBA members noted that China was expanding at a steady pace, Japan was showing promising signs and the United States was growing at a moderate pace. In contrast, the RBA noted that conditions in the euro area remained poor and the crisis in Cyprus highlighted plenty of vulnerabilities in the region.